Question 1

Sitting through a terrible movie till the end because you already bought the ticket is an example of:

Accepted Answer

A)   sunk cost fallacy
B)   making a decision at the margin.
C)   rational behavior.
D)   negative utility endorsement.E) A) and C)
F) All of the above

Question 2

Bill attends a local basketball game.The teams are very unbalanced,the play is bad,and the score quickly reaches 36-2.At halftime,Bill realizes he's having no fun,leaves the game,and goes home.Bill's behavior is NOT determined by

Accepted Answer

A)   economic logic.
B)   sunk costs.
C)   utility maximization.
D)   None of these is true.E) None of the above
F) A) and B)

Question 3

Economists make the general assumption that:

Accepted Answer

A)   people are rational, but their behavior doesn't always follow this assumption.
B)   people are irrational, but there are some correlations in behavior that have been proven.
C)   people are rational, but this doesn't really ever resemble reality.
D)   people are irrational, but this is too difficult to put into a model.E) A) and C)
F) A) and B)

Question 4

After enjoying a perfectly delicious meal,Duane treats himself and orders a very expensive dessert.After one bite,Duane realizes he does not care for it at all.He chokes it down while thinking about the money he just wasted on it.Duane's decision to eat the entire dessert is an example of:

Accepted Answer

A)   irrational behavior.
B)   a cognitive bias, because he is focused on the money spent on the dessert.
C)   emphasizing a sunk cost instead of weighing marginal costs and benefits.
D)   Duane's behavior exemplifies all of these.E) A) and D)
F) B) and C)

Question 5

The idea of time inconsistency:

Accepted Answer

A)   explains how it can be rational for someone to say he's going to eat a salad for dinner each night this week and end up eating pizza four out of five nights instead.
B)   explains how it can be rational for someone to pay more for something on his credit card than if he were to pay cash for the same thing.
C)   explains why people refuse to ignore only some sunk costs.
D)   Time inconsistency doesn't explain any of these behaviors.E) A) and B)
F) A) and C) A

Question 6

Brett desperately wants to quit smoking,but just can't seem to do it on his own.So,he tells his friends that he will pay them $20 each time they catch him smoking.This agreement with Brett's friends is an example of:

Accepted Answer

A)   an irrational choice
B)   an opportunistic device
C)   a commitment device.
D)   an irrational device.E) A) and B)
F) None of the above

Question 7

Kate receives two free passes to the waterpark for her birthday.She's not a huge fan of waterparks,and,therefore,would not buy such tickets for their face value of $90.Kate decides to use the tickets.This type of behavior is explained with the concept of:

Accepted Answer

A)   the implicit cost of ownership.
B)   the fungibility of money.
C)   ignoring sunk costs.
D)   None of these.E) A) and B)
F) A) and C) A

Question 8

An example of someone who irrationally considers sunk costs when making a decision is most likely:

Accepted Answer

A)   a family that pays $20 to enter a state park for the day and leaves after an hour.
B)   a family that pays $20 to enter a state park for the day and stays all day.
C)   someone who paid $50 for a ticket to a baseball game and ends up sitting through the entire game in the freezing rain without a jacket.
D)   someone who paid $50 for a ticket to a baseball game and ends up sitting through the entire game enjoying himself.E) B) and C)
F) C) and D)

Question 9

Behavioral economists have found that people ______________,and this leads to irrational decisions.

Accepted Answer

A)   often forget money is fungible
B)   often undervalue opportunity costs
C)   often forget to ignore sunk costs
D)   All of these statements are correct.E) B) and C)
F) All of the above

Question 10

An example of a sunk cost would be:

Accepted Answer

A)   the price of a lift ticket you bought and used to ski the whole day.
B)   the price of a lift ticket you bought and used for 1 run before you fell and broke your ankle.
C)   the nonrefundable deposit you put on your vacation rental.
D)   All of these are examples of sunk costs.E) A) and D)
F) C) and D)

Question 11

Joe walks into Best Buy prepared to spend no more than $500 cash on a new computer,but the price turns out to be $600.Joe is told if he finances it on a Best Buy credit card,it will cost $600,but he will get a $25 gift card free with the computer.Joe opts to open the credit card and puts the full $600 on the account.According to economic theory,Joe's decision is:

Accepted Answer

A)   irrational.
B)   rational.
C)   budget-conscious.
D)   optimal.E) A) and C)
F) None of the above

Question 12

An application of behavioral economics is:

Accepted Answer

A)   time inconsistency.
B)   thinking irrationally about costs.
C)   forgetting the fungibility of money.
D)   All of these are applications of behavioral economics.E) None of the above
F) A) and B)

Question 13

A consumer is likely to _____________ his opportunity costs when ____________.

Accepted Answer

A)   undervalue; they are not right in front of him
B)   undervalue; they are obvious
C)   overvalue; they are not obvious
D)   overvalue; they are right in front of himE) A) and D)
F) B) and C)

Question 14

Installing software to limit screen time,forcing you to uninstall it every time you reach the limit,is an example of:

Accepted Answer

A)   increasing the cost of a vice.
B)   a commitment device.
C)   can be explained through behavioral economics.
D)   All of these are true.E) A) and B)
F) A) and C)

Question 15

Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his iPhone 4 in a drawer and forgets about it.Economists would say this behavior is ___________ and would use the concept of ________________ to explain this choice.

Accepted Answer

A)   rational; the implicit cost of ownership
B)   irrational; the implicit cost of ownership
C)   irrational; ignoring sunk costs
D)   rational; considering sunk costsE) A) and B)
F) None of the above

Question 16

Scott and Tom have dinner together at a new restaurant,and they discover that the portions are huge but taking home leftovers is not allowed.When both decide they are full,Scott forces himself to finish the rest of the food on his plate even though he doesn't really want to,while Tom asks the waiter to remove his plate while it still contains some food.How would an economist describe this behavior?

Accepted Answer

A)   Scott acted rationally, because the food otherwise would have been thrown away.
B)   Tom acted rationally, maximizing his utility.
C)   Both Tom and Scott acted rationally.
D)   Both Tom and Scott acted irrationally.E) A) and C)
F) C) and D)

Question 17

When we say that money is fungible,we mean that a dollar spent out of your savings account:

Accepted Answer

A)   is exactly the same as a dollar spent from your checking account.
B)   is earmarked for a purpose and can't be spent on everyday expenses like groceries.
C)   is not substitutable with any other dollar you have.
D)   is worth more than the dollar you have in your pocket.E) A) and B)
F) C) and D)

Question 18

Jason spends all afternoon baking a cake.When it comes out of the oven,it's burnt and sunken in the middle,and Jason considers whether he should throw it away or not.If Jason were rational,he would compare the ______________,which is ______________,to the benefits of eating a burnt,sunken cake.

Accepted Answer

A)   sunk cost; the time and ingredients spent making the cake
B)   opportunity cost; the value of the time spent and utility from eating or doing something else
C)   total cost; the value of the time spent making the cake, the cost of ingredients, and value of the time that could be spent doing something other than eating the cake
D)   benefit of throwing the cake away; the value of not having to eat burnt cakeE) All of the above
F) None of the above

Question 19

Jason spends all afternoon baking a cake.When it comes out of the oven,it's burnt and sunk in the middle.Jason thinks about all the time he invested in making it and decides he'll spend more time frosting it and eat it anyway,even though it tastes pretty terrible.Jason's decision to continue to decorate and eat the cake is a good example of:

Accepted Answer

A)   someone focusing on sunk costs.
B)   someone ignoring sunk costs.
C)   someone thinking marginally.
D)   someone weighing the opportunity costs of frosting and eating the cake and the benefits of doing so.E) C) and D)
F) None of the above A

Question 20

Sometimes ignoring that money is fungible can be:

Accepted Answer

A)   useful and help someone stay on budget.
B)   irrational and lead to costly decisions.
C)   Both of these are true.
D)   Neither of these is true.E) A) and D)
F) A) and C)

Exam 8: Behavioral Economics: A Closer Look at Decision Making

Sitting through a terrible movie till the end because you already bought the ticket is an example of:

Correct Answer
verified

Bill attends a local basketball game.The teams are very unbalanced,the play is bad,and the score quickly reaches 36-2.At halftime,Bill realizes he's having no fun,leaves the game,and goes home.Bill's behavior is NOT determined by

Correct Answer
verified

Economists make the general assumption that:

Correct Answer
verified

After enjoying a perfectly delicious meal,Duane treats himself and orders a very expensive dessert.After one bite,Duane realizes he does not care for it at all.He chokes it down while thinking about the money he just wasted on it.Duane's decision to eat the entire dessert is an example of:

Correct Answer
verified

The idea of time inconsistency:

Correct Answer
verified
A

Brett desperately wants to quit smoking,but just can't seem to do it on his own.So,he tells his friends that he will pay them $20 each time they catch him smoking.This agreement with Brett's friends is an example of:

Correct Answer
verified

Kate receives two free passes to the waterpark for her birthday.She's not a huge fan of waterparks,and,therefore,would not buy such tickets for their face value of $90.Kate decides to use the tickets.This type of behavior is explained with the concept of:

Correct Answer
verified
A

An example of someone who irrationally considers sunk costs when making a decision is most likely:

Correct Answer
verified

Behavioral economists have found that people ______________,and this leads to irrational decisions.

Correct Answer
verified

An example of a sunk cost would be:

Correct Answer
verified

Correct Answer
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An application of behavioral economics is:

Correct Answer
verified

A consumer is likely to _ his opportunity costs when .

Correct Answer
verified

Installing software to limit screen time,forcing you to uninstall it every time you reach the limit,is an example of:

Correct Answer
verified

Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his iPhone 4 in a drawer and forgets about it.Economists would say this behavior is _ and would use the concept of ______ to explain this choice.

Correct Answer
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Correct Answer
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When we say that money is fungible,we mean that a dollar spent out of your savings account:

Correct Answer
verified

Jason spends all afternoon baking a cake.When it comes out of the oven,it's burnt and sunken in the middle,and Jason considers whether he should throw it away or not.If Jason were rational,he would compare the ,which is ,to the benefits of eating a burnt,sunken cake.

Correct Answer
verified

Correct Answer
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A

Sometimes ignoring that money is fungible can be:

Correct Answer
verified

Exam 8: Behavioral Economics: A Closer Look at Decision Making

Sitting through a terrible movie till the end because you already bought the ticket is an example of:

Correct AnswerverifiedShow Answer

Bill attends a local basketball game.The teams are very unbalanced,the play is bad,and the score quickly reaches 36-2.At halftime,Bill realizes he's having no fun,leaves the game,and goes home.Bill's behavior is NOT determined by

Correct AnswerverifiedShow Answer

Economists make the general assumption that:

Correct AnswerverifiedShow Answer

After enjoying a perfectly delicious meal,Duane treats himself and orders a very expensive dessert.After one bite,Duane realizes he does not care for it at all.He chokes it down while thinking about the money he just wasted on it.Duane's decision to eat the entire dessert is an example of:

Correct AnswerverifiedShow Answer

The idea of time inconsistency:

Correct AnswerverifiedA

Brett desperately wants to quit smoking,but just can't seem to do it on his own.So,he tells his friends that he will pay them $20 each time they catch him smoking.This agreement with Brett's friends is an example of:

Correct AnswerverifiedShow Answer

Kate receives two free passes to the waterpark for her birthday.She's not a huge fan of waterparks,and,therefore,would not buy such tickets for their face value of $90.Kate decides to use the tickets.This type of behavior is explained with the concept of:

Correct AnswerverifiedA

An example of someone who irrationally considers sunk costs when making a decision is most likely:

Correct AnswerverifiedShow Answer

Behavioral economists have found that people ______________,and this leads to irrational decisions.

Correct AnswerverifiedShow Answer

An example of a sunk cost would be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An application of behavioral economics is:

Correct AnswerverifiedShow Answer

A consumer is likely to _____________ his opportunity costs when ____________.

Correct AnswerverifiedShow Answer

Installing software to limit screen time,forcing you to uninstall it every time you reach the limit,is an example of:

Correct AnswerverifiedShow Answer

Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his iPhone 4 in a drawer and forgets about it.Economists would say this behavior is ___________ and would use the concept of ________________ to explain this choice.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When we say that money is fungible,we mean that a dollar spent out of your savings account:

Correct AnswerverifiedShow Answer

Jason spends all afternoon baking a cake.When it comes out of the oven,it's burnt and sunken in the middle,and Jason considers whether he should throw it away or not.If Jason were rational,he would compare the ______________,which is ______________,to the benefits of eating a burnt,sunken cake.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Sometimes ignoring that money is fungible can be:

Correct AnswerverifiedShow Answer

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A consumer is likely to _ his opportunity costs when .

Correct Answer
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Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his iPhone 4 in a drawer and forgets about it.Economists would say this behavior is _ and would use the concept of ______ to explain this choice.

Correct Answer
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Correct Answer
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Correct Answer
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Jason spends all afternoon baking a cake.When it comes out of the oven,it's burnt and sunken in the middle,and Jason considers whether he should throw it away or not.If Jason were rational,he would compare the ,which is ,to the benefits of eating a burnt,sunken cake.

Correct Answer
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